Dow Chemical Hides Dirty Linen from Investors Ahead of DuPont Merger

Before the special shareholder meetings for respective stockholders of Dow Chemical and DuPont today July 20, 2016, inadequate or misleading disclosures have been made in the companies’ joint merger proxy material.

Stockholders have been issued a joint proxy statement containing information on the proposals to be voted on. But Dow appears not to be respecting its fiduciary duties to shareholders- including disclosure of all facts material to the stockholders’ consideration.

These undisclosed items are substantial, material liabilities facing Dow as sole shareholder of Union Carbide- still embroiled in civil, criminal and environmental litigation regarding the legacy of the Bhopal Disaster- and which DuPont shareholders stand to inherit in the event the Dow/DuPont merger is consummated.

Potential impact of Dow’s Bhopal related liabilities:

• LEGAL: Three court cases remain outstanding against Dow/ Union Carbide in India with claims amounting to billions of dollars in potential damages. The Indian Government’s official position is that the ‘gross inadequacy’ of the 1989 settlement with UCC resulted in an ‘irremediable injustice’ and is seeking additional compensation through a curative petition. If the petition succeeds a settlement of between $1.8– 8.1billion will be required. An outstanding criminal case has the potential for unlimited damages. See: NOTE 1.

• OPERATIONAL: Publicly available financial analysis, as documented in official, director-level, signed correspondence between Dow Chemical and the Government of India, states total business losses, for Dow Chemical in India between 2008 to 2016, to be estimated at $300 million. See NOTE 2.

• REPUTATIONAL: The reputational impact of the Bhopal legacy upon Dow is measurable and material. Although Dow identified India as “a key component of its global business strategy and a significant potential contributor to Dow’s corporate growth and profitability” (Dow in India “Facts and Figures”, 2008), Dow has suffered numerous crippling setbacks in its efforts to invest in the country as a result of public protest and political engagement on Bhopal. See: NOTE 3.

Colin Toogood, Bhopal Medical Appeal spokesman said: “Dow Chemical withheld vital information, regarding Union carbide’s Bhopal related liabilities, from its SEC filings prior to the 2001 acquisition of Union Carbide and history seems to be repeating itself as Dow is, once again, concealing vital facts from investors. These are not trifling facts and would seem to already be costing Dow many millions with the potential for a vast, mutli-billion dollar hit should Dow be found against in the Indian courts”. See NOTE 4.

Rashida Bee, President of the BGPMSKS representing survivors of the Bhopal Disaster said: “Legally, company directors are duty bound to disclose all facts that are material to the stockholders’ consideration of a transaction. But DuPont shareholders have been kept in the dark about the criminal, civil and environmental liabilities of the Bhopal disaster that Dow Chemical has inherited through taking over Union Carbide.”

Concerns have also been raised regarding DuPont’s undisclosed liabilities including potential damages from claims that a chemical used to make Teflon caused cancer and other ailments: CLICK

NOTE 2: The reputational impact of the Bhopal legacy upon Dow is measurable and material. Though India currently represents one of the world’s fastest growing markets for chemical products, and though Dow identified India as “a key component of Dow’s global business strategy and a significant potential contributor to Dow’s corporate growth and profitability” (Dow in India “Facts and Figures”, 2008), Dow has suffered numerous crippling setbacks in its efforts to invest in the country as a result of public protest and political engagement on Bhopal. Publicly available financial analysis, as documented in Dow Chemical-Government of India official director-level signed correspondence, states total business losses in India from 2008 to 2016 to be estimated at $300 million. For example, a proposed 50% / 50% joint venture between Dow and GACL for producing chloromethanes had to be cancelled in 2012.The Government of India, Ministry of Chemicals & Fertilizers, Department of Chemicals & Petrochemicals stated at the time “that until the Dow Chemical Company of whom the Dow Europe GMBH Switzerland is a subsidiary owns up responsibility for environmental remediation in Bhopal Gas Leak site disaster remediation, no proposals of investment should be considered favorably by Government of India.”[i] As a result of this cancellation, Dow realised losses of $17 million between 2011-13, and missed out on expected revenues of $283 million (expected revenue until 2016 was to be $565 million, with each partner receiving half[ii]). Similarly, an intended R&D development at Pune, within which Dow planned to employ “500 high calibre scientists” at an investment of $100 million, had to be abandoned, with between $15 to $20 million written off. The abandonment was caused, according to India’s Minister for Chemicals and Fertilisers, by Dow’s refusal to accept responsibility for remediating the contaminated Bhopal plant site.[iii] The Director of Corporate Affairs at Dow Chemical India Private Ltd., Rakesh Chitkara, is quoted by U.S. Embassy officials as saying that the Dow had formerly intended to invest up to $5 billion in India by 2015. Officials concluded “that given the difficulties Dow has recently experienced, that level of investment looks extremely unlikely.”[iv] Returns upon the intended investment of $5 billion would have resulted in a materially significant percentage of the Company’s overall business and been reflected in current and future earnings. As Motley Fool observed in 2012, “Dow’s refusal to take responsibility for Bhopal has hit the company’s bottom line well beyond the associated legal costs. The unaddressed liability has hurt its reputation, resulted in protests and media backlash, and even limited its ability to invest overseas”[v]

NOTE 4: The merger agreement between Dow and UCC denied outright UCC’s criminal liability in the Bhopal case. In fact, it denied that any pending criminal prosecution existed against UCC. Article V of the Merger Agreement 214 stated: “there are no (i) civil, criminal or administrative actions, suits, claims, hearings, investigations or proceedings pending or, to the actual knowledge of its executive officers, threatened against it or any of its Subsidiaries… except for those that are not, individually or in the aggregate, reasonably likely to have a Material Adverse Effect on it.” 214 Submitted with the Schedule 13D, as well as in other public filings before the Securities and Exchange Commission.

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We believe Dow & DuPont must finally accept responsibility for Bhopal. Until then, The Bhopal Medical Appeal funds two award-winning clinics in the city. Both offer free, first-class care to victims of the gas disaster or the ongoing water contamination. The survivors have nowhere else left to turn – please help if you can.